It’s easy to forget, during the tumult of summer, just how bad the state of Illinois’ finances are.
That’s why a recent report from the Mercatus Center at George Mason University is welcome. It provides a timely reminder that state officials can run from fiscal reality, but not hide.
After reviewing the finances of the 50 states across five categories, researchers concluded that Illinois ranks “50th among the U.S. states for fiscal year.” In other words, it’s the worst.
All but one of Illinois’ neighboring states – Kentucky ranked 46th – scored appreciably better in the 180-page report prepared by Mercatus researchers Eileen Norcross and Olivia Gonzalez.
Missouri ranked No. 15, Indiana No. 21, Wisconsin No. 26, Iowa No. 29 and Michigan No. 32.
States scoring at the top of the fiscal-solvency test were Nebraska, South Dakota, Tennessee, Florida, and Oklahoma. Joining Illinois and Kentucky at the bottom of the measures were Massachusetts, New Jersey and Connecticut.
The researchers at the Mercatus Center, a university-based research center that focuses on market-oriented solutions to economic problems, built their conclusions by studying economic challenges all states face.
They are cash solvency, budget solvency, long-term solvency, service-level solvency and trust-fund solvency.
Those are fancy words that focus on whether states can meet their short-term obligations – paying bills and balancing their budgets – and long-term obligations – maintaining solid cash reserves, controlling spending growth and properly funding pensions.
Researchers found “Illinois has between 0.55 and 1.13 times the cash needed to cover short-term obligations, well below the U.S. average. Revenues only cover 92 percent of expenses, with a worsening net position of -$450 per capita. In the long run, Illinois’ negative net asset ratio of 2.86 points to the use of debt and large unfunded obligations. Long-term liabilities are higher than the national average, at 330 percent of total assets, or $12,816 per capita. Total unfunded pension liabilities that are guaranteed to be paid are $445.79 billion, or 67 percent of state personal income. OPEB (other-post-employment benefits) are $51.90 billion, or 8 percent of state personal income.”
That’s a polite way of saying that the state’s finances are, essentially, a dumpster fire.
Although many people prefer not to think about or even recognize it, Illinois’ sorry financial status is old news. Owing to a variety of problems – the 2008 recession, poor financial decisions by governors and legislators, a slow-growing economy – the state has been going straight downhill for roughly 20 years.
Further, trying to address one problem merely exacerbates others. Our elected officials have tried to solve short-term budget problems (passing a budget that funds core services) by ignoring long-term budget problems (properly funding public pensions).
In doing so, they kept the wolf from the fiscal front door – the state budget – while letting a pack of them in the back door – underfunded pensions and a mountain of unpaid bills.
Where all this will lead is impossible to predict.
Gov. J.B. Pritzker’s solution is to do more in the future of what’s been done in the past – dramatically increase both taxing and spending.
While the future is a mystery, there’s no doubt about the present. Things are bad and can get even worse, even though Illinois’ fiscal picture is the worst in the nation.